As of this writing (7/18/2022), the top 10 non-stablecoin cryptocurrencies, in order, are:
- Bitcoin (BTC)
- Ethereum (ETH)
- Binance Coin (BNB)
- Ripple (XRP)
- Cardano (ADA)
- Solana (SOL)
- Dogecoin (DOGE)
- Polkadot (DOT)
- Polygon (MATIC)
- Shiba Inu (SHIB)
This is an interesting and diverse set of coins and tokens. But what can this list tell us about the current state of the cryptocurrency space?
First of all, it is important to note that Bitcoin currently holds 40% of the entire market capitalization of cryptocurrency. This in itself should demonstrate the immaturity of the space, being dominated so entirely by one cryptocurrency. Of course it’s dominated by that cryptocurrency because it happens to check pretty much all the boxes that investors (particularly during a bear market with stagflation fears) are looking for: security, name recognition, and a low, immutable and predictable inflation rate.
Ethereum holds about 20% of the cryptocurrency total market capitalization. As the first “Layer 1” to truly deliver on the promises of “programmable money,” Ethereum also has an edge in that, again, it is decentralized with strong utility, has strong name recognition, and also has a low (and going lower) inflation rate.
These two facets in themselves demonstrate the strong immaturity of the space currently. What other burgeoning sector or market is dominated by 60% by only two products? The key here is “burgeoning,” as obviously with more mature sectors it is possible for consolidation to occur to such a degree that monopolization is a concern. But cryptocurrency is an industry with practically no barrier to entry and was founded on the tenet of decentralization, so this is not the case for the crypto sector.
Nonetheless, the remaining crypto currencies (market cap 1-8) have “market dominance” of:
- BNB 4%
- XRP 1.6%
- ADA 1.5%
- SOL 1.3%
- DOGE .9%
- DOT .8%
- MATIC .7%
- SHIB .7%
All told, the remaining 8 cryptocurrencies by market cap (again, excluding stablecoins) account for 11.5% of the total cryptocurrency market cap, or about half of the market cap of Ethereum, with the lion’s share of *that* being from Binance Coin.
So what can all this tell us?
As was mentioned, the fact that Bitcoin and Ethereum so thoroughly dominate the market indicates incredibly immaturity in the space. It indicates incredible fear as well of moving from these so-called “safe” cryptocurrencies into these relatively “unknown” ones. Obviously, this is an opportunity for education (for which I can help, here) as well as being optimistic for the crypto space in that so much money would find its way into the space. However, it is also concerning because it indicates that people do not understand the remaining cryptocurrencies. So let’s take time to address some of the largest ones outside of Bitcoin and Ethereum.
First, the fact that Binance coin (a coin used by the Binance exchange) holds 20% of Ethereum’s market cap and 4% overall should indicate the absolute dominance of Binance as an exchange within the cryptocurrency space. It also indicates the primary purpose many people see in cryptocurrency as being a form of speculation. Indeed, if you were to take a look on an average day at derivatives data for cryptocurrencies, Binance is consistently listed as the top exchange where traders choose to engage in trading and derivatives activities. This bodes well for Binance and demonstrates its strength, though a risk is also that of regulation since it is a coin issued by a centralized entity. It also indicates that the speculative nature of cryptocurrency is not going away any time soon.
Ripple’s XRP is next on the list, and in many ways I would see this as an indication of the stickiness of some coins and tokens. It was initially developed as an alternative solution to the international banking network SWIFT which makes sense given the initial intent of cryptocurrency being used to replace existing financial systems, but it has seen no limit to the pushback and resistance as a result. You have to admire the idealism behind such a project, but the token has become, recently, increasingly irrelevant as it is not even necessary to use the network and many institutions are hesitant to utilize it due to regulatory concerns. It has subsequently been delisted from many exchanges as a result of an SEC lawsuit as well. I see XRP as somewhat of a “zombie” coin as a result. In many ways, the lawsuit against Ripple (the company behind XRP) by the SEC may have actually given XRP greater staying power than it may have had otherwise, since it keeps the company behind the token continuously relevant as long as the lawsuit continues.
Cardano (ADA) and Solana (SOL) are next on the list, and they are also Layer 1s which, like Ethereum, provide platforms for decentralized applications and organizations to deploy. In other words, they also are “programmable money.” It is interesting that these projects sit right next to each other in terms of market capitalization, because the underlying development philosophies and founders behind each coin could not be more different. Cardano takes a “slow and steady” approach, whilst Solana is more akin to modern day tech startups, willing to take risks and break things if it means moving forward and developing. Nonetheless, they both occupy the #2 and #3 positions, respectively, in terms of Layer 1s after Ethereum.
I will address DOGE and SHIB jointly. The fact that these coins occupy the #7 and #10 market capitalization spots for this industry is just further proof, if any was needed, of the absolute immaturity of the space. I think it also demonstrates the lack of seriousness in the space, which perhaps is refreshing and necessary given the incredibly serious implications and ideals of this space and what it ostensibly aims to achieve. Remember the goals, for example, of Bitcoin as laid out by Satoshi and the initial developers of Bitcoin. This is not to be condescending, but rather I think it is interesting that the power of memes has penetrated this industry to such a degree. It is also interesting to note that both coins are memes of dogs, and specifically, Shiba Inu dogs. What are the personality characteristics of Shiba Inu dogs? According to Google, they are charming, alert, fearless, keen, confident, and faithful, and I think it is these elements that serve the entire cryptocurrency space by having such memecoins take such high positions.
Next, I will address my personal favorite (admittedly) project on the list, Polkadot (DOT). Polkadot is essentially a novel scaling solution for Layer 1s generally which calls itself a Layer 0 — ie a layer below. It is entirely independent from Ethereum or any other project however, and is rather a new design for encompassing Layer 1s within a shared security model. The reason it calls itself that is because Polkadot is essentially security token which allows hundreds of Layer 1s to utilize shared security and therefore, create perhaps the strongest and most secure network possible while offering interoperability amongst hundreds of Layer 1s. At this point, in order for, for example, Cardano and Solana to interact with one another, they would need to use what are called “bridges,” which are incredibly centralized and therefore non-secure means of attaining interoperability between Layer 1s. Polkadot solves this by providing an umbrella for hundreds of Layer 1s to share security and be interoperable without any security concerns. I believe Polkadot will soon rise to the #3 position in market cap as this is understood, but its current position is an indication that the technology has not reached mainstream understanding.
(as a side note, if you would like, you can join a Telegram group I created for Polkadot)
The final token here is MATIC, which can be thought of as an alternative philosophical approach vs Polkadot to Layer 1 scaling solutions (particularly, for Ethereum), as well as a “professional robot assistant” for Ethereum. Unlike Polkadot, Polygon (MATIC) sees Ethereum’s position and strength as a building block for a scaling solution, rather than an impetus to develop an entirely new product. Ethereum in itself is a network defined in some sense by quirkiness and immaturity much like its founders, and novel, honest projects that mirror those characteristics tend to do well on Ethereum. However, as Ethereum was the first Layer 1, it has also gotten attention and desire from far more “professional” and “sophisticated” projects, and these projects find themselves increasingly unable to perform standard transactions on Ethereum due to simple bottleneck constraints. As a result, Polygon was invented as a way to give more capability to Ethereum and free up resources and constraints. It is referred to as a “Layer 2” solution because it sits on top of Ethereum’s blockchain.
So what does all this mean, taken in tandem, and knowing what we already do about the market cap?
To find closing thoughts, let us break down again what we have outside of Bitcoin and Ethereum from positions 3-10, this time with descriptions:
- BNB 4%, a token for a cryptocurrency exchange, including crypto derivatives
- It is interesting to note that outside of Bitcoin and Ethereum, the next highest market cap coin is for an exchange with the primary purpose being to obviously cash in on cryptocurrency movements. This should not be dismissed as driving market force.
- XRP 1.6%, an “alternative banking” token with primary current relevance being an SEC lawsuit
- Next, we have an alternative banking token with current primary relevance being an SEC lawsuit, indicating the dangers of regulations looming over the space.
- ADA 1.5% & SOL 1.3%, two layer 1s of opposite philosophical viewpoints
- After that, we have two extremely different kind of Layer 1 coins, with one being relatively “old-fashioned” and professorly in its approach, and the other taking with it the Silicon Valley mantra of “move fast and break things.” This nonetheless emphasizes and underlines the importance of Layer 1 technology within the space going forward.
- DOGE .9% & SHIB .7%, two memecoins of Shiba Inu dogs
- The continued interest in DOGE and SHIB indicates the need for lightheartedness within the space, which hearkens back to the deeper reason this developed in the first place. Like a loyal dog, these memecoins stand by the cryptocurrency space to provide some lightheartedness in what can sometimes be a grueling grind.
- MATIC .7% & DOT .8%, professional scaling solutions for Ethereum and Layer 1s generally, respectively
- The positions of MATIC and DOT *also* underscore the importance of layer 1 technologies, as well as their increasing limitations. Both of these coins position themselves more as solutions for businesses to take advantage of Layer 1 technology, and attempt to make it a more friendly (in terms of cost and development) space for business-oriented solutions to develop without either 1) costing tremendous amounts depending on network activity or 2) requiring the need for specialized “wallets” as needed for Ethereum, Cardano, and Solana.
In sum, obviously the space is still incredibly immature and 60% dominated by two solutions who have both produced incredible innovations/inventions while having successfully “proven themselves” to varying degrees. Additionally, it is clear that the speculative nature of cryptocurrencies is not going away, and that regulation looms large for those projects who may be too “on the nose” in threatening existing financial institutions. Layer 1s will also obviously be a driving force, but it is already becoming apparent that they have limitations, which is why scaling solutions are already being developed. Since Layer 1 innovation already occurred during the last bull market cycle, it is reasonable to assume that scaling solutions of varying philosophies may have their day for next cycle. Finally, the friendly and outgoing memecoins have still stuck by the crypto space, like a loyal dog, as this 13 year old industry pushes forward into maturity.